Windows Azure, a "services-based operating environment," competes with Amazon's Elastic Compute Cloud (EC2) as a scalable hosting environment on which developers can build and host their applications, Ozzie said in his keynote at the Professional Developers Conference (PDC), which kicked off Monday in Los Angeles.

Microsoft is releasing a Community Technology Preview (CTP) of Windows Azure in the U.S. at PDC, and eventually will host the service in global data centers.

The announcement of Windows Azure was expected, as Microsoft CEO Steve Ballmer said in a public appearance earlier this month that Microsoft was readying a Windows cloud offering it would reveal in only a few weeks.

Ozzie said a team of Microsoft developers led by Amitabh Srivastava, vice president of Windows Azure team, had begun working on Azure just before Amazon unveiled EC2. He said he tipped his hat to Amazon.com CEO Jeff Bezos and the Amazon team for bringing its offering to market before Microsoft.

"All of us are going to be standing on their shoulders" as the technology industry transitions from offering and using traditional software run in enterprise IT networks to running more applications on the Internet via cloud-computing environments hosted by large vendors, Ozzie said.

However, he noted that Microsoft had "somewhat broader and different objectives" than Amazon in developing Azure, since unlike Amazon, it has the responsibility to support a vast global network of software developers and applications already built on its infrastructure software.

Ozzie dipped into the past to show how cloud computing has evolved beyond the virtualization and utility models that have been present in corporate IT systems for 30 years or more and were pioneered by his former company, IBM.

Previously, companies developed these networks for their own employees and didn't expect to be serving customers and partners outside the firewall, he said. But "things are materially different when building systems to serve the world of the Web than it is ... serving those that live in the company's four walls," Ozzie said.

Developers can use Microsoft's familiar .NET tools to build applications on Windows Azure and Microsoft used those tools to develop the environment, said Srivastava, who took the stage Monday after Ozzie to describe Azure in more detail. Eventually, Microsoft also will host all of its own Web-based services on Azure, he said.

Key to Azure is a Fabric Controller that "manages the lifecycle of the services" that developers build, Srivastava said.

The Fabric Controller "views all of the data center as fabric of shared hardware resources that can be managed and shared with all the services there," he said. This enables Azure to update developer's applications automatically, sparing them the hassle of updating those applications across individual PCs across the enterprise, Srivastava said.

Windows Azure also separates applications from the OS layer using Microsoft's virtualization technology, which also eliminates the need for updating desktop PCs when updating applications. This has long been a sore spot for corporate IT teams and has been seen as a stumbling block for enterprises to update to the latest version of the Windows client OS, Windows Vista.

Ozzie did not say when Windows Azure would be generally available, but said Microsoft will be discussing the platform in more detail in the next several days at the show.